France is shedding petrochemicals capacity as the recession bites deep into revenue, forcing plant closures. As a result, BMI's report forecasts a 15-20% drop in petrochemicals output, which is more than twice the 7% decline forecast by France's chemical industry association, Union des Industries Chimiques (UIC). France is in its worst recession since World War II, with a collapse in output across industry. Considering that the chemicals sector is traditionally very sensitive to the economic cycle, this can only spell bad news for French producers. Exports sales of chemicals are already falling sharply. Producers have been faced with a challenging economic environment characterised by a slowdown in the construction and automotive industries, volatile raw material prices and the negative impact of the euro's appreciation against the US dollar. The slowdown affected both domestic and foreign markets and industrial and household demand. Key petrochemicals consuming industries are in a state of collapse that will not be reversed until well into 2010. For instance, BMI forecasts that vehicle production will fall to 2.52 mln units by the end of 2009. The French government has pledged to give €6 bln in aid to the French car industry, after both PSA Peugeot Citroën and Renault cut production. This financial support is unlikely to have a major impact on chemicals and petrochemicals producers, which will face severe declines in sales volumes and revenues. Petrochemicals will also be particularly vulnerable to massive increases in capacity in the Middle East and Asia. The key Asian market, China, will become far more self-sufficient as its capacities increase and demand growth slackens. In order to sustain production, French petrochemicals producers will have to ramp up R&D, improve their products' added value, and exploit niche and speciality markets. At the same time, restructuring, streamlining and integrating operations will be crucial to boosting profitability. New efforts are expected to involve partnerships with clients, new innovation sources and higher integration with refining. Recent plant closure announcements include Celanese's 600,000 tpa acetyls complex at Pardies and LyondellBasell's 110,000 tpa LDPE plant at Fos-sur-Mer, while Total has cut capacity at its Gonfreville refinery plant. Total has also announced the closure of its LDPE line in Carling, in the east of France, as well as the closure of its Notre-Dame-de-Gravenchon (Seine-Maritime). Common issues are falling demand, high costs and over-capacity. Political pressure and the offer of public money have not stopped the plants from closing. BMI believes that further closures over the course of the economic recession are likely. By the beginning of 2009, France had petrochemicals production capacities of 3.47 mln tpa of ethylene, 1.6 mln tpa of PP, 2.27 mln tpa of PE and 1.39 mln tpa of PVC, but polymers capacity is set to fall over the next two years as French plants lose out on cost to new plants in the Middle East and Asia. With financing conditions still difficult, firms are also likely to make more efforts to preserve cash, resulting in delays in large-scale investment projects.